Investors banking on retail sales numbers

Friday, November 23, 2007

ECONOMIC DATA / NEWS

Today may be the single biggest day in determining what rates do for the rest of the year.  Known as Black Friday, today is the biggest shopping day of the year as early holiday shoppers flood the malls and other stores in search of deals.  Most retailers are trying to lure shoppers out with discounts as great as 75% off normal prices.  Hundreds of shoppers will line up outside stores at 4:00 AM, if not earlier.  Several large retailers even opened their doors as early as midnight, while other stores tried to get even more of a jump on things by staying open on Thanksgiving day.  This weekend is considered a gauge of how strong retails sales will be in December.  Strong sales would offer a big boost to stocks next week, which would most likely pull money out of bonds.  And with stocks dropping so much over the last few weeks, there is even greater upside potential.

Oil prices have receded this morning off Wednesday’s high above $99.00 per barrel.  Light crude has fallen to $96.42.  It is probably finding psychological resistance at $100, and there could be profit taking going on from speculators as well.  But it’s going to take more than a one day decline to ease consumers’ minds.  At least it’s a step in the right direction though.

TECHNICAL ANALYSIS

The MBS rally on Wednesday was a shocker, to say the least.  And so far, those gains are holding, with the FNMA 30-year 6.0% flat at 100.94.  MBS were probably benefiting from the fact that Treasury yields plummeted on Wednesday, and investors were looking for better returns.  They are finding resistance once again though around 100.91 to 100.94.  By the end of the year, traders are going to have to choose between pushing prices above the six-month high at 101.06, or allowing prices to fall below the upward trend line.  There is a very good chance that this will occur within the next couple of weeks, especially when we consider how volatile the markets have been lately.

The 10-year Treasury yield bounced off support around 4.00% and popped up to 4.05%.  It has been bouncing back and forth between 4.04% and 4.05% ever since.  The stock market should help traders choose a direction, and considering the futures markets are indicating stocks are in for a higher opening, there is a good chance the yield will jump higher after 9:30 AM ET.  There will be moderate resistance at 4.10%, a previous support.  Then, there is strong resistance from the 10-day moving average at 4.15%.  However, the yield is due to trade back above this line, as it has been below this average for the better part of the last month.  It probably won’t break it today, unless there is a massive rally in the stock markets.  But, we could very well be above it by Tuesday.

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